Thursday, August 8, 2013

New USFL D.O.A.? Jaime Cuadra admits to embezzling funds for the league...

In a blow to the chances of  "The New USFL", Jaime Cuadra --- the faceman for fledgling football league --- has admitted to embezzling funds from his former employer to fund his recruiting efforts for owners to build the new league. Susan Schroeder of wrote:

" — A former San Diego business executive pleaded guilty Monday to embezzling more than $1 million from two local companies and using the money primarily to fund a fledgling professional football league, federal officials said.

The defendant, Jaime Cuadra, 54, was former chief financial officer of Oceanic Enterprises Inc. He pleaded guilty to wire fraud and filing a false federal income tax return in connection with the embezzlement from Oceanic and its parent company, Umami Sustainable Seafood Inc., U.S. Attorney Laura E. Duffy said in a statement.

Federal documents do not name the league, but in 2012 Cuadra said he had acquired the United States Football League brand.


In court documents, Cuadra admitted that he used the embezzled funds to attract league investors and pay league executives and marketing and public relations fees...."

While I was not thrilled at the idea of a minor league using the USFL name, I find this story sad on several levels.

I would not be surprised to hear sometime in a few months that the league --- minus Cuadra's stolen money --- implodes within their first year, or even before they ever play a game.  I am not happy about that at all.  Leagues failing that quickly discourage investors in future leagues.

I still firmly believe that today there is a tremendous opportunity to compete with the NFL at limited costs.  I think there is a clear pathway for a competing professional football league to develop at reasonable costs to a handful of brave owners.

So if there is a clear pathway, why did the UFL fail and why am I so down on the New USFL's chances? 

With apologies to both groups, I don't think either the UFL or the New USFL group has worked from a what I see as a viable vision.  The UFL opened with the idea of owners investing $30 Million up front and then paying for a $20 Million dollar roster.  That likely seemed far to rich of a cost for a business with the survival rates of upstart pro football leagues.  I think they scared away all but the super-rich billionaire potential owners.

When the owners did not appear, the UFL flipped to the idea of being a minor league that fed players to the NFL.  To my outsider's view, it appeared that the UFL's initial owners had big money invested for a minor league.  I wonder if, for that reason, the buy in costs were kept too high to attract new owners for the uninspiring product that was the UFL.

The New USFL' s initial vision is (was?) the other extreme with a $1 million buy in and a "committment" to spend $6.5 million more.  I think most targeted businessmen may have questions about the ability of this plan to yield viable investments.

So what do I think it would take to build a viable start-up league?

Well to start, I believe the toughest bottleneck to get by is locating enough quality owners.   I think ideally 12 owners/ownership groups are needed to start a pro football league that will survive.  (Potentially it could work with as few as eight, but I strongly suspect the odds of success would decrease a fair amount for each team below 12.)

Spit balling it, given the losses seen by teams in the original USFL (adjusted for today's dollars), you probably need owners who are willing to put up about $10 Million to buy in and potentially lose as much as $30 Million dollars on their teams in operating costs over the 4-5 year period before the teams and the league start to stabilize. (This is obviously a "quick and dirty" educated guess.) 

I'd think it would be tough finding 8-12 spring football advocates willing to potentially light $30-$40 million on fire on a gamble.

There is a sales pitch that might work, though.  A successful league built upon those lines IMO, would have a chance for those owners to end up with a stable pro team in a stable spring league worth $200-$400M (say 25-40% of an NFL team's value) within about ten years.

While that's a nice return that could be sold to investors, it  is still a tough sale as the startup costs are big and as the original USFL proved as few as 1-2 crappy owners (like the original league's J. William Oldenburg, Eddie Einhorn, and Donald Trump proved) can skunk everyone else's efforts and kill the league --- even if the other owners do almost everything right!

With that in mind, I would think you'd be looking for owners (or ownership groups) who are rich, but not Donald Trump or Mark Cuban rich.  I am thinking people or groups with net worths in the $350-800 million range.  Rich enough to afford the expense; Poor enough to feel a real need to make it work and to religiously stay within the league's financial structure.

And that is the trouble with the new USFL failing quickly.  A quick failure of another "competing league" only shrinks that pool of potential investors.